Canada’s Innovation Gap (part 1)

While this post is targeted at the innovation, funding and technology issues in Canada, it may apply to other geographies as well, particularly if you don’t live/work in technology hot spot such as Silicon Valley or Boston or Banglalore etc. This is a topic that is very dear to me, given that I currently live and work in Canada, but spent 6 years earlier this decade living and working in the San Francisco Bay Area.

A couple of weeks ago, there was an great article in The Globe and Mail newspaper (one of Canada’s leading daily papers) entitled Canada’s innovation gap. The article, by Konrad Yakabuski, outlined what I think is both an accurate and troubling picture of the state of R&D and innovation in Canada. Here are some highlights from the article.

Innovation in Canada is in deep trouble. Productivity is stagnating; the manufacturing sector in imploding, and the government policy makers seem asleep at the wheel.

Once the flagship of Canadian high tech, Nortel is being dismantled and it’s best assets are being sold to foreign companies.

While Blackberry maker Research in Motion is a true global leader, and often cited as an example of what is possible in Canada, there are few if any other Canadian companies that can be held in the same light.

Canada’s economy is heavily resource based, and those companies spend very little of their revenues on R&D, even though they made enormous profits before the recession due to high commodity prices.

While Canada was moderately successful at moving from a provider of raw resources to foreign countries to a more modern economy, the last 10 years have reversed that process.

Historically, the small group of elites that got rich on these resources controlled the political levers to ensure nothing changed. [Note: I personally think this still applies although not as much as it once was]

Innovation is the only sure way for Canada to be more productive.

I could go on. It’s a great article, and it should be a wake up call to every politician and business leader with any sense of commitment to the future and well-being of this country.

Change is a process

Change is needed on a lot of fronts. While many politicians are quick to highlight that the Canadian economy has faired better than other industrialized economies in the current economic crisis, it doesn’t change the fact that there has been a huge disruption in the Canadian economy, widespread layoffs, plant closures and bankruptcies.

Keep in mind that billions were spent to help manufacturing companies, particularly automakers with vociferous unions, but little if any was spent or allocated to help technology companies or create environments to make investment in high-tech much easier. A quote from the article:

“Canada is not being productive because it’s not being innovative,” said Robert Brown, chief executive officer of Montreal-based CAE Inc., the world leader in aircraft flight simulators and training. “A lot of innovation occurs at the interface with the customer. But when you look at the make-up of Canada’s economy, with so much dependence on resources, there is less contact between [our biggest] companies and end users.”

I think this is a polite way of saying that there are a lot of companies that are more than happy to cut down trees or dig minerals or pump oil out of the ground and then ship it off to some other country to be processed and have value added to it.

Aside from being innovative, Canada needs to look to add significant value to whatever industries it has. We have great R&D minds in this country, but there are problems in productizing the research and funding and scaling businesses.

My personal experience

I moved to California back in 2000 to seek better opportunity – i.e. professional and financial gain — than I could find here in Canada. One of my best friends from high school — a brilliant guy who did his undergrad at Harvard and his Ph.D at Princeton, is now a research professor at another Ivy League school, even though he really wanted to come back and live and work in Canada. He told me back in the early 90s that the opportunities just weren’t here for him. He’s a great example of the brain drain this country faces on a regular basis.

I moved back to Canada a few years ago for personal reasons and I have to say it wasn’t easy coming back. Aside from the nicer weather in California, I knew that my career opportunities would be more limited than they were there.

And trust me, there is a huge difference in the technology industry here in Toronto and that of Boston or San Francisco. Everything from the amount and quality of investment funding, to the networks of people with connections into technology giants to the breadth of skill sets of individuals, and even to the aspirations of company founders are very different.

We’ve got brilliant people

I’m not slagging anyone here. There are very bright, dedicated and passionate people here. I’m proud to know a number of them. But when it comes to goals, too often a Canadian VC or company founder sees a $50 million exit as a big win, whereas in the US, that’s on the low end of their success scale.

And that exit often means jobs moving to the US or offshore. In many cases the key people in the acquired company (the bright, dedicated and passionate ones) move down to the US to work “at corporate”, and the brain drain continues.

I don’t want to paint a completely bleak picture of the situation here. As I said earlier, there are very bright, talented and passionate people here. In fact, after I moved down to Silicon Valley in 2000, one thing I realized was that the people down there are not smarter than the people here.

But the level of investment financing, the personal networks of skilled people, the institutions like Stanford and Berkeley all provide a critical mass of infrastructure that enable risk taking and innovation on a scale we don’t really have in Canada. The infrastructure and culture there pull bright people from other parts of the country and other parts of the world.

The issue is not the people here in Canada, it never has been. It’s all the other business levers that innovators need to “nail and scale” their businesses to be world leaders. I personally think the co-founders of RIM (Mike Lazaridis and Jim Balsillie) should be viewed as national heroes, on the same scale as Wayne Gretzky or Gordie Howe (famous hockey players for those of you who didn’t grow up on hockey!).

I’m sure Mike and Jim had numerous incredibly lucrative offers to sell their company over the years. But they didn’t. They held on, grew the company, fought off lawsuits, challenged rivals and continued to innovate and create a global leader based in Waterloo Ontario. And just recently RIM was named the fastest growing company in the world by Fortune magazine.

So what can be done to close the innovation gap? Konrad offers some solutions in his article. I’ll get more into that in part 2. But in the mean time, I’d like to hear what you think, particularly if you are here in Canada, or are Canadian and are living/working outside of Canada.

6 responses to “Canada’s Innovation Gap (part 1)”

Saeed, great post with thoughts applicable to any geography. So, what can the non- technology rich locations do to drive innovation? I live in Boise Idaho, not Boston. In some ways, Boise is like our comrades to the north. We have a stable infrastructure and a rich technology heritage with Micron Technologies (DRAM NAND) and HP (imaging).

While some stalwarts have taken a down turn, it has provided paths for innovation and new startups. With the assistance of the state, local entrepreneurs and venture funding, there’s a large number of new startups and a network of resources to support these efforts. Groups like KickStand http://bit.ly/hphz6 have been formed to support and inspire, while events like http://www.idavation.com/ brought several hundred aspiring entrepreneurs to collaborate.

Each geography has to decide its approach and use the local talent to infuse, inspire and push things forward. Remember, “if you don’t make dust, you eat it” when it comes to innovation.

I sadly have to agree with you. I’ve seen and experienced the Ottawa technology grow and shrink over the past 30 years (yikes!). What I have noticed is that with each passing of a giant, up springs a number of smaller companies and if the stars line up, some will succeed … Corel, Cognos, etc. had their starts from meager beginnings. But the issue as you eloquently point out is that the stars need to line up … I know of many companies here that have failed (been part of a few myself).

With the ultimate demise of Nortel a handful of good startups will emerge – I see it happening now … lots of good ideas in the early stages.

So I guess we’ll stay tuned and see what happens and hope that a shining star emerges. Thanks for this post.

Stem Cells were first identified by Canadian scientists in 1961(!), again here in Toronto.

The chocolate bar was invented by a Canadian! Yeah take that Mr. Hershey. Also the zipper, the snow blower (of course!), ginger ale, pacemaker, paint roller, pablum, newsprint, geiger counter, V-chip, and more.

For such a tiny country population-wise, there’s a real inventive streak in Canada.

So I have no doubt that there will be some very innovative work done by those ex-Nortel folks. But what will happen to their work. Will it die due to lack of funding? Or will it be bought for a tiny amount (relatively speaking) by foreign firms, with IP and brainpower transplanted across the border?

That’s the part that I fear. That what we create here in Canada is not going to remain here long enough for Canada to reap the benefits.

Part 2 of this article will talk about what we can do to stem that trend.

You’d love talking to my dad. He literally watched the tech industry grow and implode multiple times, in Ottawa over the past 40 years.

He started with BnR like everyone else, and became the first engineer ever hired at Mitel.

He tells me endless stories of missed opportunities for developing innovation in Canada, from research projects when he was in grad school to watching the most talented people he hired leave for silicon valley for the same reasons you did.

He’s convinced however that silicon valley will have the same fate, as the new innovation he believes, is in Asia.